Spain warned to avoid regressive policies
EUROPEAN Central Bank (ECB) chief Mario Draghi’s promise of support for the eurozone calmed financial worries about Spain last week but analysts warned Madrid against regressive policies that could deepen its 25% unemployment rate.
The International Monetary Fund warned on Friday that the Spanish recession would be worse than previously thought, forecasting a contraction of 1,7% this year and of 1,2% next year. Spain’s economic growth figures for the second quarter are due out today by the national statistics office.
ECB president Mr Draghi calmed investors last Thursday when he vowed “to do whatever it takes to preserve the euro”, which implied that the bank may ease credit conditions by buying bonds or making cheap loans.
“We hope Mr Draghi’s words will serve as an oxygen tank for the financial markets in the coming weeks,” said analysts at brokerage Link Securities. “This does not mean the problems of the economies of southern Europe are over.”
After Mr Draghi’s comments, Spain’s sovereign interest rates eased back from danger levels and Madrid’s stock market shot up on Thursday and Friday, recovering some of the huge falls of previous days. The government on Friday also dismissed warnings that Spain might need a full international bail-out, as economists have warned.
But Spain’s economic and financial problems run deep, the legacy of a decade-long real estate boom that went bust in 2008 with the debt crisis. The Bank of Spain last week estimated the contraction in growth had accelerated in the second quarter to 0,4%, after falls of 0,3% in each of the previous two quarters.
Under pressure from European authorities that have agreed to bail out Spanish banks, Spain’s conservative government has approved tens of billions of euros’ worth of spending cuts, tax hikes and other measures to cut the deficit and restructure the economy.
Critics say the poor will suffer unfairly from moves such as a public sector bonus cut and a rise in sales tax that will hit consumption. “All the spending cut policies they are taking are restrictive and run counter to growth,” said Alberto Roldan, an analyst at brokerage Inverseguros. “Raising the fiscal pressure in a country with 25% unemployment is absolutely regressive.”
Hundreds of thousands of Spaniards have marched noisily in the street over recent weeks in protest at the measures. Unions have threatened a general strike and have called for fresh demonstrations on September 15. Figures from Spain’s national statistics office on Friday showed the jobless rate rose in the second quarter to 24,635%, and 53% among the under-25s.
Economists were waiting for the ECB’s next policy meeting, on Thursday, to see if it announces concrete measures. Sapa-AFP